Stocks

  • 27 Apr
    The S&P 500 Only Has Sentiment To Thank For The Gains In The Last 5 Years

    The S&P 500 Only Has Sentiment To Thank For The Gains In The Last 5 Years

    • Positive sentiment alone has added 950 points to the S&P 500 in the last 5 years.
    • The S&P 500 has returned 12% in the last 5 years, but only 4.5% in the last 10 years and just 2.7% in the last 17 years. Don’t let current positive sentiment lead you to such terrible long term returns.
    • The opportunity cost might be significant, but the long term picture of not following the herd looks much better.

    Introduction

    I know that if I buy a stock with a price to earnings (P/E) ratio of 10 and stable future business prospects, my very long-term return should be around 10%, plus inflation and eventual growth. If I buy a stock at a P/E ratio of 5, my returns will be around 20%, while if I buy a stock with a P/E ratio of 20, my returns will be around 5%. It’s as simple as that, in the long term. More →

  • 14 Apr
    Debunking Bad Investment Advice: Don’t Buy That Wonderful Brand At Just Any Price

    Debunking Bad Investment Advice: Don’t Buy That Wonderful Brand At Just Any Price

    • As wonderful as a company may be, the price paid for it is the determining factor for investment returns.
    • Many companies with great brands have seen their stock prices appreciate while their fundamentals stagnate.
    • Buffett has mostly bought at wonderful prices. Keep that in mind when investing.

    Introduction

    It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.

    Many asset managers and financial advisors have Buffett’s quote on their promotional materials and web pages. However, more arguments can be made against the above statement than for it. We’ll go through some examples to help prevent you from falling into the trap of paying what the market thinks is a fair price for companies that might not be that wonderful after all. More →

  • 13 Apr
    Why You Should Consider Defined Benefit Pension Plans Before Investing

    Why You Should Consider Defined Benefit Pension Plans Before Investing

    • By adjusting a few percentage points on expected returns and discount rates, unfunded amounts become huge.
    • It’s essential to check the possible future pension obligations of your investments as they can easily cost you your returns. I’ll show a possible impact on General Electric.
    • If you have a defined benefit plan of any kind, don’t take it for granted. The only certain retirement income is the one you provide by yourself.

    Introduction

    A good way to see what’s going on in the pension fund industry is to analyze the 50 largest defined pension plans of the S&P 500 through Goldman Sachs’s 2016 Pension Review. More →

  • 12 Apr
    How To Prepare For Anything The Economy Throws At You

    How To Prepare For Anything The Economy Throws At You

    • All stocks will rise with a rising tide, therefore it’s wise to buy those stocks that won’t fall off a cliff in a recession.
    • The usual suspects—like consumer staples, utilities, and healthcare—are good ideas, but not at any price.
    • Bonds are close to becoming a win win situation.

    Introduction

    Yesterday we analyzed the FED’s latest meeting minutes, and saw how when the FED applies historical probability calculations to their own estimations, the result is that anything can happen.

    The FED itself stated that, in the next few years, economic growth could be anywhere between -0.5% and 4%, unemployment between 2% and 7%, and inflation between 1% and 3% with a 70% confidence interval. A 70% confidence interval means that there is a 30% chance economic indicators end up outside the above mentioned ranges. More →

  • 06 Apr
    Read This Before Investing In The Next “Cool” Company

    Read This Before Investing In The Next “Cool” Company

    • The investment thesis behind investing in cool businesses is based on stellar growth. As no business can grow forever, sentiment often changes and stock prices plunge.
    • We’ll discuss, Tesla, Nike, Lululemon, Whole Foods, Under Armour, GoPro, Fitbit, and Microsoft to find the best way to invest in such businesses, because many of them are great businesses.
    • In the end, it all boils down to earnings. If you’re a long-term investor, focus on the business and its long-term health.

    Introduction

    I’m a value investor and as one, I always try to invest with a margin of safety. However, sometimes I get carried away and invest in companies that don’t really meet my investing criteria.

    The last investing mistake I made—where I invested in something because it was a cool brand, my wife loved shopping there, and it was growing fast—that perfectly relates to the topic of this article, was Whole Foods Market (NASDAQ: WFM). More →

  • 05 Apr
    Healthcare Is The Only Sector Where Investing Now Isn’t That Bad Of An Idea

    Healthcare Is The Only Sector Where Investing Now Isn’t That Bad Of An Idea

    • Fundamentals and the long-term demographic trend show that the healthcare sector is undervalued.
    • As it’s a recession-proof sector, largely diversified investors should be overweight healthcare and seize the current halt in price growth.
    • We’ll discuss the top ten healthcare stocks and show that there is something for everybody to invest in: dividends, stability, low valuation, high valuation, growth, takeovers, etc.

    Introduction

    Yesterday’s article focused on how baby boomers will put downward pressure on stocks in the next 15 years. Today we’ll discuss a way to make money on the same trend. More →

  • 08 Mar
    Inflation Has Arrived – Here’s What That Could Mean For Markets

    Inflation Has Arrived – Here’s What That Could Mean For Markets

    • After 7 years of enjoying interest rates close to zero, the party is over.
    • There are several scenarios that can develop, but the long-term outcome is clear.
    • In the short term, higher interest rates should increase demand for the dollar and U.S. assets, so we could see a higher S&P 500 in combination with higher interest rates.

    Introduction

    For the past year I have been writing about how things are bound to change when inflation finally arrives. Well, inflation has arrived and it’s quickly going higher which means that we’ll have to start talking in nominal and real returns, the FED will be forced to take action no matter the economic environment, and it will have significant repercussions on the economy and markets.

    Usually when I’ve written about inflation, it was about something that will happen somewhere in the future. Now that inflation is finally here, I’ll discuss what will happen in the short term. More →

  • 07 Mar
    The Superinvestors Of Graham And Doddsville – Is Buffett A Hypocrite?

    The Superinvestors Of Graham And Doddsville – Is Buffett A Hypocrite?

    • According to Warren Buffet in 1984, investing and beating the market is simple: just use value investing and a margin of safety.
    • For this market, value investing is irrelevant. However if things change, value investing will become essential.
    • Spoiler alert: What I’ve written in this article you will either immediately like or totally disregard. Unfortunately, the latter will have a negative impact on your wealth.

    Introduction

    One short, 15-page article holds more investing insight than all the content published by the media in a year. It’s Warren Buffett’s article The Superinvestors of Graham and Doddsville.

    As the article was written in 1984, it gives you the real, non-political and unconstrained Buffett. Today’s Buffet is a hypocrite because he is forced to say index funds are a good investment even though stocks are at valuations he would never approve of. He has become so big that anything opposite to positive statements would lead to a possible market meltdown. Plus, don’t be confused by the fact that he recently bought $12 billion of stocks, as he bought into extremely cheap sectors, you can read more about that here.

    Today, I’ll summarize Buffett’s article and put it into today’s context. More →

  • 06 Mar
    The Market Is Euphoric – It’s Time To Get Rid Of Your Overvalued Stocks

    The Market Is Euphoric – It’s Time To Get Rid Of Your Overvalued Stocks

    • Market timing is tricky because if you missed the best 40 days in the last 20 years, your annual returns quickly turn from positive 8.19% to negative -1.96%.
    • But the fact remains that we are looking at a euphoric market with shaky economic foundations.
    • You don’t have to get out of the market. Getting out of overvalued stocks should suffice.

    Introduction

    With every new high reached by the DOW or the S&P 500, the market gets riskier. However, I don’t want to be another analyst that just predicts doom and gloom so today I want to discuss the best risk reward allocation and what an investor can do in these exciting but risky times. More →

  • 16 Feb
    How Much Will You Lose In The Next Bear Market?

    How Much Will You Lose In The Next Bear Market?

    • The current stock market will, on average, deliver returns of 4% per year for the next 15 years. However, the risks don’t justify the returns.
    • All investors owning an S&P 500 or similar portfolio should know that they run the risk of a 50% temporary decline.
    • Various sectors and countries offer much higher returns for the same inherent volatility.

    Introduction

    What’s equally important to how much you expect to make from your investments if things go well is the question of how much volatility you can take if things go wrong. Today’s article is more of a reminder that there are two sides to each investment, the return side and the risk side.

    I’ll elaborate on techniques that will help you assess your future returns and risks. We’ll start with the fun part, the returns, and finish with the necessary part, the risks. More →

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